Mortgage Rates Vary By Loan Type (FHA, USDA, VA)

Mortgage shoppers are often surprised to learn there isn’t “one rate” for all loans. Different borrowers receive different rates.

Home buyers should compare their loan options before making a final mortgage decision:

Which loan type offers the lowest cost?

Which loan type will work best with my credit score?

Which loan type gives me the lowest upfront cost?

The borrower that presents the lowest risk to the lender will typically be the one that gets the lowest rate.

For example, FHA loan rates are often lower than conventional rates because FHA loans are insured against loss by the government.

This government-guarantee is the same reason why VA mortgage rates and USDA mortgage rates are often low, as well.

However, the loan with the lowest rates isn’t always what’s best. Some loans carry secondary costs, which can affect a program’s suitability for your individual situation.

Reasons To Choose Conventional

So, why would anyone consider a conventional loan, then, which carries no guarantee whatsoever? It’s a matter of total costs over time.

Conventional loans aren’t burdened with the same sets of fees that government-backed loans pass to their consumers.

For example, FHA loans require both upfront and monthly mortgage insurance fees that tend to be higher than for a comparable conventional loans.

Despite lower mortgage rates, FHA loans are often more expensive over 30 years.

Another factor is flexibility.

Conventional loans via Fannie Mae and Freddie Mac allow a buyer to purchase any tyoe of home whatsoever – a single-family, a vacation home, or a home to use as an investment property.

By contrast, But government-backed loans are only available to buyers who plan to use the subject property house as their primary residence.

Additionally, some government loans are restricted by borrower class. For example, only current and former military service members can apply for a VA home loan ; and, only home buyers in rural and suburban neighborhoods can qualify for a USDA mortgage .

Lower Interest Rates With Shorter Rate Locks

A mortgage rate lock is a bank’s promise to deliver a certain rate on a certain date and the length of your mortgage rate lock affects your rate quote, too.

This is because mortgage lenders take on considerable risk when locking rate for customers. If the borrower locks in a 3.75% mortgage rate today, for example, and home loan rates rise to 4.75% tomorrow, the lender must still honor the locked, lower rate.

To protect against such runaway rising rates, lenders hedge their rates against time.

Lenders typically offer locks in 15-day increments of 15, 30, 45, and 60 days, and so on. Some lenders even offer 180-day and 365-day locks for new construction housing with no defined “closing date”.

For lock periods of less than 90 days, lenders typically increase rates by 0.125 percentage points for each additional 15 days. A 30-day mortgage rate of 3.75%, for example, would move to 4.00% for a 60-day lock.

When you’re under contract to buy a home, and the closing’s in 50 days, you can elect to lock a 60-day mortgage rate today, or wait five days and take a 45-day rate lock.

Get a lender’s advice before deciding what to do. You’ll pay a higher mortgage rate for locking a 60-day mortgage but, in 5 days, when the 45-day rate lock is available, mortgage rates may be considerable higher.

There are risks to waiting to lock a loan so a good strategy can be to lock your mortgage rate when you qualify for the home, and are happy with the rate.

Trying to time the market rarely works out well.

Check Today’s Interest Rates

Consumers get better mortgage rates when they know the market, and know for what they’re eligible. Stay up-to-date and check current mortgage rates often.

Compare today’s mortgage rates now. Rates are available online, and no cost, and with no obligation to proceed. Your social security number Is not required to get started.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.